Thursday, December 11, 2014

With SD's Economy Drifting into the Doldrums, Expanding Medicaid Makes More Sense Than Ever

It's Time We Looked Into This Thing

Now that Governor Daugaard has conceded that South Dakota's economy won't even come close to living up to his expectations last Winter, he should consider a rather obvious elixir that could take up some of the slackness that has materialized. The chastened tone of Daugaard's budget address last week was palpable. He presented an economic forecast for the next budget year that fell substantially below the expectations he built up during his State of the State address last January. Daugaard's pessimism comes across graphically in a recently-released forecast by SD's Bureau of Finance and Management. The report's conclusion that SD's 2015 growth rate won't even match what it was prior to the "great recession" is news that calls for some aggressive thinking about ways to get our state's economy back on track.Given Daugaard's cautiously reactive tone when discussing the upcoming budget, I wondered why our Governor couldn't be a bit more pro-active in his approach to energizing the economy. Daugaard is either overlooking or ignoring an obvious boost to our near-static growth rates--Medicaid expansion. It's a part of the Affordable Care Act that provides money to states for Medicaid coverage for folks who don't qualify for either existing Medicaid or conventional healthcare coverage via ACA subsidies. In South Dakota that number seems to be around 25,000, per a study by the non-partisan, non-profit South Dakota Budget and Policy Institute. SDBPI's research notes that, yes, there will be additional costs to the State of South Dakota as part of the deal for accepting federal Medicaid money to cover those 25,000 South Dakotans. And yes, the federal government's share declines every year until 2019 to the point where South Dakota's ongoing contribution will be 10% of the cost of expanded Medicaid. But consider the total outlays by SD through 2022 vs. the revenues from the federal government: SD pays out $157 million and gets back $2.1 billion, yes billion with a "b." Are we as a state too stupid to grasp what a good deal this is? Though some believe that the ACA is eventually going to be legislated out of existence, that's a political pipe-dream. It's here to stay. You might as well get used to it. And even if the fantasy of its demise were to come true, the worst case scenario is that we just go back to the bad old way of doing things. And more to the point, if South Dakota decides to ditch the plan altogether, it can choose to "un-expand." As the SDBPI report notes, the decision is always open to revision by South Dakota. Meantime, here's a concluding summary of the economic gains that will accrue if South Dakota expands Medicaid. It comes from SDBPI's initial study(using a 2013-2019 time frame)conducted by two university researchers in Nebraska: “the state will see an increase in Medicaid spending of approximately $102 million over a seven-year period. However, the increase in economic activity associated with Medicaid expansion, i.e. the reduction in bankruptcies, the reduction in uncompensated care etc., will increase local and state tax receipts by $49.5 million. The $49.5 million does not include the potential impact of the federal injection that will accompany expansion. Including the stimulus of the federal injection over seven-years creates an additional $116.7 million in state and local taxes.The benefits to the wider South Dakota economy clearly outweigh the cost. Direct benefits, not including the federal injection, for the economy over the ten-year period following expansion are estimated at $1.5 billion.”These numbers bear serious consideration by our elected officials, especially now that a softening economy is suddenly beset by unexpected demands for road improvements, to the tune of $500 million. Until now, Medicaid expansion has been summarily dismissed by Daugaard and the state's GOP-dominated legislature. Until now, the state's economy has been moving along briskly enough to ignore the financial potential of expansion. Until now, politics, not economics, has been the driving force of the discussion. So what about now? Time for some serious reconsideration.

About Me

I'm a businessman and writer living in the Black Hills of South Dakota. I've written articles and commentary for 25+ years. I was a member of the Chicago Board Options Exchange and the founder of a futures brokerage firm for a total of twenty years and I own commercial real estate in western South Dakota. I served three years ('66-'69) in the U.S. Marine Corps, including a 13-month tour of duty in Vietnam as a radioman. My wife and I have two grown daughters. We make our home in Rapid City, South Dakota